What the Fed's Doing and Why

Here's an overview of the Federal Reserve's been up to and why it should matter to you.

On March 18, the Federal Open Market Committee, led by Federal Reserve Chairman Ben S. Bernanke, voted to keep its key target interest rate at 0%, sparking a rally in stocks and a decline in the U.S dollar. Yields on the 10-year bond to decline the most they had since 1962, and gold and oil ended the day sharply higher.

A shock to the market was the statement from the FOMC that the Federal Reserve will increase the size of its balance sheet another $1.15 trillion by buying an additional $750 billion in agency mortgage-backed securities, fully backed now by government-sponsored entities Fannie Mae ( FNM) and Freddie Mac ( FRE), and purchasing up to $300 billion of "longer-term Treasury securities over the next six months."

But what exactly is the Fed doing, and how does it affect the rest of us?